93365 THE POWER OF PUBLIC INVESTMENT MANAGEMENT' Transforming Resources into Assets for Growth C O U N T RY C A S E S T U D Y Zambia: Rebuilding a Broken Public Investment Management System Tuan Minh Le, Gaël Raballand, and Patricia Palale 2014 0 COUNTRY CASE STUDY: ZAMBIA 2014 ! Rebuilding a Broken Public Investment Management System THE AUTHORS Tuan Minh Le Senior Economist, World Bank Gael Rabballand Senior Public Sector Specialist, World Bank Patricia Palale Former World Bank Public Sector Specialist This case study is one of a number of country cases in the Public Investment Management Series. The country case studies accompany the volume, “The Power of Public Investment Management: Transforming Resources into Assets for Growth”, World Bank (2014), and apply a common methodology to assess PIM systems globally. T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 1 COUNTRY CASE STUDY: ZAMBIA 2014 ! Rebuilding a Broken Public Investment Management System ! ' ' Zambia ' ' ' The' chapter' follows' the' diagnostic' methodology' as' outlined' in' Rajaram' et' al.' (2010).' The' diagnostics' is' based' on' interviews,' a' survey' questionnaire' with' government' officials,' CSOs,' and' private' sector' and' desk' review' of' related' documents.' The' paper' identifies' the' weaknesses' in' processes' and' institutions' that' contribute' to' poor' outcomes' of' public' spending.' The' Government' has' been' conducting' a' number' of' reforms' in' this' field,' such' as' overarching' public' financial' management' and' procurement' reforms.' However,' the' public' investment' management' (PIM)' remains' largely' inefficient' and' certain' key' functions' of' project' evaluation' are' missing' or' in' rudimentary' forms.' To' succeed,' all' the' pieces' of' reforms' have' to' be' woven' into' a' coherent' framework'targeting'the'weakest'links'in'the'PIM'system.'Multiple'factors,'including'the'absence'of' necessary'institutions,'unclear'institutional'mandates,'weak'capacity,'lack'of'vertical'and'horizontal' coordination,' and' misaligned' incentives' drive' the' inefficiency' of' PIM.' This' also' implies' that' pure' technical'solutions'do'not'guarantee'success.'As'a'result'this'paper'suggests'that'strengthening'of' the'challenge'function'of'the'Ministry'of'Finance'in'Zambia'is'critical'for'better'PIM'but'a'gradual,' incentiveYcompatible'approach'is'probably'necessary'in'the'current'context.' Reference: Rajaram, A., T. M. Le, N. Biletska, and J. Brumby. 2010. “A Diagnostic Framework for Assessing Public Investment Management.” World Bank Working Paper 5397, World Bank, Washington, DC. T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 2 ! COUNTRY CASE STUDY: ZAMBIA 2014 ! Rebuilding a Broken Public Investment Management System + Zambia'is'a'large'country'with'a'lowYdensity'(13'persons'per'square'kilometer'on'average)' and' sparsely' distributed' population,' which' is' a' problem' for' designing' a' sound' public' investment' policy.'For'social'cohesion,'investments'in'infrastructure'would'need'to'be'carried'out'in'numerous' remote'places,'whereas'from'an'economic'perspective,'these'investments'can'hardly'be'justified.' Zambia'experienced'strong'economic'growth'during'the'period'1999–2009,'with'real'GDP' growth'averaging'5'percent'per'annum.'However,'this'did'not'reach'the'historical'highs'of'the'first' decade' after' independence.' In' addition,' growth' has' not' translated' into' a' significant' decline' in' poverty,'especially'in'rural'areas.'The'2006'“Living'Conditions'and'Monitoring”'survey'(CSO'2010)' revealed'that'59'percent'of'the'population'lived'below'the'national'poverty'line.'This'is'similar'to' the'58'percent'in'2004'but'lower'than'the'67'percent'in'1998.'Despite'this'improvement,'poverty' levels' in' rural' areas' remain' high,' at' 77' percent' in' 2006' and' 2004' and' 83' percent' in' 1998' (CSO' 2010).' In' the' last' few' years' while' urban' poverty' declined,' rural' poverty' has' remained' comparatively'high.' Since'the'early'2000s'Zambia'has'been'recovering'the'progress'made'in'the'early'1960s'to' 1970s' in' school' enrollments;' maternal' mortality;' and' infant,' child,' and' underYfive' mortality.' Education' indicators' have' improved,' with' increases' in' primary' school' enrollment' and' declining' dropYout'rates.'The'primary'completion'rate'increased'to'72'percent'in'2005'from'63.6'percent'in' 2000.'Health'indicators'have'also'shown'some'improvement'since'the'early'1990s;'both'rural'and' urban'infant'mortality'fell'considerably'between'1990'and'2000.''' However,' since' the' midY1970s,' the' gains' in' social' indicators' achieved' after' independence' were' reversed' in' line' with' a' decline' in' incomes.' After' 1985' the' quality' of' primary' education' deteriorated'significantly.'Much'of'the'increase'in'enrollment'had'been'the'result'of'increased'class' sizes' and' double,' triple,' and' quadruple' shifts.' Maternal' mortality' worsened' during' 1996–2002.' There' has' been' deterioration' in' some' additional' indicators.' Access' to' improved' water' dropped' from' 49' percent' of' households' in' the' early' 1990s' to' around' 34' percent' in' the' early' 2000s.' Similarly,' access' to' improved' sanitation' dropped' to' 18' percent' of' households' in' the' early' 2000s,' from' 27' percent' of' households' in' the' 1990s.' Immunization' rates,' although' good' compared' to' the' rest'of'Africa,'appear'to'be'declining.' Since' donors' have' reduced' their' capital' expenditures' in' the' country,' Zambia' increasingly' needs' efficient' public' investment.1' While' domestic' financing' accounted' for' oneYquarter' of' public' investment'in'2005'and'threeYquarters'by'donors,'by'2009'the'situation'had'almost'reversed,'with' donor'funding'accounting'for'less'than'40'percent.'A'greater'percentage'of'capital'expenditures'are' financed'domestically'than'in'the'past,'and'this'trend'is'projected'to'continue.' The'recurrent'trend'in'public'investment'in'Zambia'is'that'capital'expenditures'remain'low' compared'to'current'expenditures'and'even'wages'(see'annex'1).2'The'ratio'of'capital'expenditures' to' current' expenditures' has' decreased' significantly' recently' and' was' situated' at' less' than' 25' percent'in'2009.'Since'resources'for'capital'expenditures'seem'to'be'decreasing'(or'stable'recently' at' approximately' 4' percent' of' GDP)' (see' annex' 2),' a' goal' for' the' country' must' be' to' enhance' T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 3 COUNTRY CASE STUDY: ZAMBIA 2014 ! Rebuilding a Broken Public Investment Management System efficiency' of' public' spending.' Another' recurrent' trend' regarding' public' investment' in' Zambia' is' that'the'ratio'between'actual'and'budgeted'expenditures'is'between'60'and'80'percent'for'all'major' sectors' except' education.' This' may' signal' various' underlying' problems' but' the' absorption' challenge'of'effectively'spending'the'annual'allocated'budget,'especially'capital'budget,'stood'out'as' a'major'stumbling'block'to'enhancing'overall'public'investment'management'(PIM)'efficiency.3' This' chapter' follows' the' diagnostic' methodology' outlined' in' Rajaram' et' al.' (2010).' The' assessment' covers' eight' critical' stages' of' public' investment' management' (PIM):' investment' guidance' and' preliminary' screening,' formal' project' appraisal,' independent' review' of' appraisal,' project' selection' and' budgeting,' project' adjustment,' facility' management,' and' project' evaluation.' Box' X.1' summarizes' the' essential' features' of' a' good' PIM' system.' The' diagnostic' is' based' on' both' interviews' and' a' survey' questionnaire' with' government' officials,' civil' society' organizations,' and' the' private' sector,' as' well' as' on' a' literature' review' of' related' documents.' The' research' identifies' the'weaknesses'in'processes'and'institutions'that'contribute'to'poor'outcomes'and'focuses'on'the' “must' have”' bareYbones' institutional' features' that' would' mitigate' major' risks' and' provide' an' effective'process'for'managing'public'investments.'' The' Government' of' Zambia' has' been' conducting' a' number' of' reforms,' notably' public' financial' management' (PFM)' and' procurement' reforms.' The' most' recent,' the' 2010–12' mediumY term' expenditure' framework' (MTEF),' reemphasizes' the' direction' for' improving' public' spending' through'better'prioritizing'of'programs'and'projects'and'achieving'better'”value'for'money'spent.”' However,'the'PIM'system'remains'largely'inefficient,'and'certain'key'functions'of'project'evaluation' are'missing'or'present'in'rudimentary'form.4'To'succeed,'all'the'pieces'of' the'reforms'have'to'be' woven'into'a'coherent'framework'targeting'the'weakest'links'in'the'PIM'system.'Multiple'factors,' including'the'absence'of'necessary'institutions,'unclear'institutional'mandates,'weak'capacity,'lack' of'vertical'and'horizontal'coordination'and'misaligned'incentives'drive'the'inefficiency'of'PIM.'This' also' implies' that' pure' technical' solutions' do' not' guarantee' success.' In' the' current' political' and' institutional' setting,' a' gradual' pragmatic' approach' to' PIM' reform,' including' improving' the' challenge' function' of' the' Ministry' of' Finance' (MOF),' is' probably' necessary' to' make' an' ultimately' beneficial'impact.' In' Zambia' sector' ministries' are' authorized' to' plan' and' implement' their' own' sectoral' investments.' The' investments' are' guided' by' the' National' Development' Plan,' the' Medium' Term' Expenditure' Framework' (MTEF),' and' the' annual' budget.' Within' the' government' ministries,' the' planning' departments' play' a' cardinal' role' in' investment' planning.' There' is' no' challenge' system' either'from'the'top'(MOF)'or'from'within'the'sectors;'project'rationale'and'economic'returns'are' not'challenged'in'general,'which'may'lead'to'bad'project'selection.'Availability'of'resources'is'what' normally'dictates'whether'an'investment'will'be'made'or'not.'Typical'are'incomplete'investments' due'to'the'inadequate'capital'budgeting'process,'where'resources'may'be'available'in'one'year'but' would' not' necessarily' be' available' the' next.' Apart' from' major' investments,' sectors' do' not' systematically' carry' out' detailed' analysis' (costYbenefit' analysis,' cost' effective' analysis)' of' the' investments'they'make.'Coupled'with'the'inability'of'MOF'to'play'the'challenging'role,'this'leads'to' a'proliferation'of'projects'that'are'incomplete'or'fail'to'yield'the'expected'benefits,'or'simply'end'up' T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 4 COUNTRY CASE STUDY: ZAMBIA 2014 ! Rebuilding a Broken Public Investment Management System costing' more' than' budgeted—and' the' problems' are' a' result' of' multiple' factors,' including' ubiquitous'delays'in'payments.'' The' following' section' summarizes' institutional' arrangements' for' capital' budgeting' and' implementation.'After'that'is'a'thorough'assessment'of'the'PIM'operations.'The'chapter'concludes' with'a'summary'and'policy'recommendations.'' Current+Institutional+Framework+and+Ongoing+Reforms+ + MOF' has' two' divisions:' Financial' Management' and' Administration,' and' Budget' and' Economic'Affairs'(see'annex'3).'As'a'central'agency,'it'is'responsible'for'providing'guidance'for'and' monitoring'the'PIM'process.'However,'in'practice,'the'MOF'does'not'play'its'role'adequately.'Some' recent' PFM' reforms' go' in' the' right' direction,' but' major' steps' are' still' needed' to' improve' the' current'situation.'The'governance'context'and'political'economy'of'reforms'in'Zambia'might'cause' weak'oversight'of'the'MOF'in'PIM.'' The' rebirth' of' national' planning' and' the' consequent' establishment' of' the' Monitoring' and' Evaluation' (M&E)' Department' represent' commendable' strides' forward' in' PIM.' Formally,' the' department’s' mandate' has' included' a' wide' range' of' responsibilities' for' project' monitoring' and' evaluation—particularly,'tracking'budget'execution,'monitoring'fiscal'releases'against'budget,'and' identifying' actions' as' necessary' to' get' the' budget' back' on' track' (MOF' 2009)' To' carry' out' these' mandates,' M&E' is' supposed' to' coordinate' with' other' major' departments' in' the'MOF,' specifically,' the' Budget' Office,' Accountant' General’s' Office,' and' Planning' and' Economic' Management' Division' (Figure'1.1).' ' ' ' ' ' ' ' ' ' ' ' T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 5 COUNTRY CASE STUDY: ZAMBIA 2014 ! Rebuilding a Broken Public Investment Management System Figure+X.1+++Monitoring+and+Evaluation+of+Public+Spending+ '' Budget&Releases Budget&Office Feedback!for! Macro&Level& Budget! Expenditure! Budget&Analysis& Preparation (Quarterly)& Data Accountant&General’s& ! Follow&up &with& M&E& Office& MPSA Department Sector&Level& ! ! Identification!of!problem! Budget&Analysis& (Quarterly&–&but& sectors phased) Presentation& Feedback!for!SNDP!Preparation to&SAG Planning&and&Economic& Management&Division District&Visit&/&Spot&Monitoring FNDP&Priorities + The' country' has' been' implementing' public' sector' reforms' aimed' at' building' institutional' capacity' since' 1993' with' minimal' success.' These' institutional' weaknesses' impact' on' the' effectiveness'of'public'investment'management.'The'extreme'low'capacity'of'the'M&E'Department,' the'lack'of'legal'foundations'for'and'a'culture'of'crossYinstitutional'coordination,'the'absence'of'a' consolidated'database'of'proposed'and'completed'projects,'and'the'missing'central'guidelines'for' project' appraisal' in' general,' and' for' ex' post' evaluation' in' particular,' all' contribute' to' constraints' that'eventually'confine'evaluation'to'a'mere'ad'hoc'procedure.'The'M&E'Department’s'monitoring' reports' end' up' exclusively' focusing' on' measuring' and' tracking' disbursements' against' the' budget' allocated'to'Ministries'Provinces'and'Spending'Agencies'(MPSAs);'they'do'not'present'timeliness'of' implementation,' total' cost' management' during' construction,' or' expected' benefits' of' completed' projects.5' The' recent' restructuring' of' MOF' has' led' to' further' fragmentation' of' its' planning' and' budgeting' functions,' resulting' in' available' staff' resources' being' spread' too' thinly;' for' example,' T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 6 COUNTRY CASE STUDY: ZAMBIA 2014 ! Rebuilding a Broken Public Investment Management System individual'analysts'in'the'Budget'Office'may'oversee'several'major'ministries'and'have'very'little' time' available' for' the' analytical' tasks' involved' in' the' policyYled' budget' process.' Analytical' capacities'in'MOF'in'some'key'areas,'such'as'public'investment'appraisal,'are'limited.'The'absence' of'systems'and'processes'that'would'guide'the'functioning'of'these'departments'has'led'to'a'further' weakening'of'the'ministry.'The'Accountant'General’s'office'is'supposed'to'have'information'on'all' public' investments' made,' in' progress,' or' planned;' however,' such' information' is' not' available.' Sectors' are' supposed' to' maintain' their' own' registers.' Nonetheless,' their' completeness' is' not' verified'by'an'independent'internal'source.'The'implementation'of'an'asset'management'module'in' the' Integrated' Financial' Management' Information' System' (IFMIS)' is' intended' to' address' this' weakness;'in'reality,'however,'that'implementation'has'been'delayed.' Zambia' has' in' place' a' system' of' oversight' institutions' with' both' internal' and' external' checks'and'balances,'instituted'by'different'institutions'whose'combined'role'is'to'ensure'that'the' country'has'accountable,'transparent,'and'credible'institutions'that'can'limit'inefficiencies'in'public' spending,'thereby'making'public'resources'safe'from'wrongdoing.'These'institutions'have'usually' failed' to' fully' implement' their' stated' mandate,' mainly' because' some' Controlling' Officers' are' functioning' at' the' whim' of' the' appointing' authority.' This' trend' has' been' entrenched' since' 2003' with' the' introduction' of' performance' contracts' in' the' Zambian' public' service.' Due' to' the' politicization' of' the' civil' service,' the' sanctioning' system' is' weak' and' collusion' between' auditors' and' controlling' officers' occurs' rather' frequently' (Mwangala' 2010).' Governance' challenges' that' have' come' to' light' over' the' years—most' recently' in' the' health' sector—also' explain' the' lack' of' progress' in' implementing' changes' or' reforms' to' improve' service' delivery' to' the' public' or' the' failure' over' the' years' of' the' executive' branch' to' follow' through' on' public' policy' implementation.' Political' interference' during' project' selection' and' project' management' seems' to' be' pervasive' in' some'sectors'and'could'explain'the'relatively'low'valueYforYmoney'for'capital'spending.'' Patronage'and'governance'challenges'do'not'explain'all'the'problems'in'the'public'service,' nor' the' inability' of' the' executive' to' follow' through' stated' policy' priorities.' Multiple' factors,' including'the'absence'of'necessary'institutions,'unclear'institutional'mandates,'weak'capacity,'lack' of'vertical'and'horizontal'coordination'and'misaligned'incentives'drive'the'inefficiency'of'PIM.'To' succeed,' all' the' pieces' of' reforms' have' to' be' woven' into' a' coherent' framework' and' certain' governance' reforms' have' to' be' undertaken' in' parallel' with' technical' measures' targeting' the' weakest'links'in'the'PIM'system.'' Assessment+of+PIM+in+Zambia++ The' 2011–13' Medium' Term' Expenditure' Framework' emphasizes' that' public' investment' will'target'diversification'through'increased'investment'in'economic'and'social'infrastructures'and' an'improved'legal'framework'for'PFM.'In'recent'years,'the'Government'has'taken'steps'to'improve' public'investment'efficiency,'such'as'the'following:' • As'of'the'middle'of'July'2013,'the'Planning'and'Budget'Act'was'approved'by'the'cabinet' and' was' intended' to' be' presented' to' Parliament' in' the' current' sitting.' The' Act' would' T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 7 COUNTRY CASE STUDY: ZAMBIA 2014 ! Rebuilding a Broken Public Investment Management System legislate'the'planning'and'budget'process'for'the'public'service'and,'as'such,'would'tend' to'enhance'the'quality'of'planning'and'budgeting'of'capital'expenditures.'' • Revised' development' strategies' were' published' and' are' used' as' basis' for' project' screening.' • PFM' reform,' in' particular' the' introduction' of' the' Medium' Term' Expenditure' Framework' (MTEF)' and' Activity' Based' Budgeting' (ABB),' has' laid' the' groundwork' for' linking'capital'planning'and'budgeting.' • Procurement' reform' has' been' launched.' A' new' Public' Procurement' Act' has' been' enacted,'creating'the'legal'foundation'for'enhancing'quality'of'procurement'to'achieve' value'for'money'and'to'mitigate'fiduciary'risks.'' Efforts'are'being'made'to'streamline'facility'management—with'the'first'critical'step'to' be'toward'full'accounting'and'registering'state'assets,'regardless'sources'of'funding.' ' While'scaling'up'public'investment'may'create'opportunities'for'growth,'critical'challenges' and' pressing' needs' for' enhancing' quality' of' PIM' remain.' The' following' assessment' addresses' the' existing'issues'at'each'of'the'eight'distinct'but'interconnected'stages'of'the'PIM.' ' Box+1:+Essential+Features+of+a+PIM+System+ The' following' elements' would' minimize' major' risks' and' provide' an+ effective' process' for' managing'public'investments:' 1. Investment+ Guidance+ and+ Preliminary+ Screening.+ A' first' level' screening' of' all' project' proposals' should' be' undertaken' to' ensure' that' they' meet' the' minimum' criteria' of' consistency'with'the'strategic'goals'of'Government.' 2. Formal+Project+Appraisal.+ Projects'or'programs'that'meet'the'first'screening'test'should' undergo' more' rigorous' scrutiny' of' their' costYbenefit' or' costYeffectiveness.' The' project' selection'process'needs'to'ensure'that'projects'proposed'for'financing'have'been'evaluated' for'their'social'and'economic'value.'The'quality'of'ex'ante'project'evaluation'depends'very' much' on' the' quality' of' the' analysis,' which,' in' turn,' depends' on' the' capacity' of' staff' with' project'evaluation'skills,'as'well'including'that'of'Chile,'indicates'that'consistent'investment' in' training' in' project' evaluation' techniques' is' an' important' aspect' of' an' effective' PIM' system.' 3. Independent+ Review+ of+ Appraisals.+ Where' departments' and' ministries' (rather' than' a' central' unit)' undertake' the' appraisal,' an' independent' peer' review' might' be' necessary' in' order'to'check'any'subjective,'selfYserving'bias'in'the'evaluation.'' ' ' T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 8 COUNTRY CASE STUDY: ZAMBIA 2014 ! Rebuilding a Broken Public Investment Management System ' 4. Project+ Selection+ and+ Budgeting.+ The' process' of' appraising' and' selecting' public' investment' projects' must' be' appropriately' linked' to' the' budget' cycle,' even' if' the' project' evaluation'cycle'runs'on'a'different'timetable.'' 5. Project+Implementation.+ Project'design'should'include'clear'organizational'arrangements' and'a'realistic'timetable'to'ensure'the'capacity'to'implement'the'project.' 6. Project+ Adjustment.+ The' funding' review' process' should' have' some' flexibility' to' allow' changes' in' the' disbursement' profile' to' take' account' of' changes' in' project' circumstances.' Each' funding' request' should' be' accompanied' by' an' updated' costYbenefit' analysis' and' a' reminder'to'project'sponsors'of'their'accountability'for'the'delivery'of'the'benefits.'' 7. Facility+ Operation.+ Asset' registers' need' to' be' maintained' and' asset' values' recorded.' Ideally,' countries' should' require' their' operating' agencies' to' compile' balance' sheets,' on' which' the' value' of' assets' created' through' new' fixed' capital' expenditure' would' be' maintained.'' 8. Ex+post+Project+Evaluation.+ Ex'post'project'evaluation'of'completed'projects'should'focus' on'the'comparison'of'the'project’s'outputs'and'outcomes'with'the'established'objectives'in' the' project' design.' Good' practice' suggests' that' the' project' design' should' build' in' the' evaluation'criteria'and'that'learning'from'such'ex'post'evaluations'is'used'to'improve'future' project'design'and'implementation.' Source:!Rajaram'et'al.'2010.' ' Investment+Guidance+and+Preliminary+Screening+ The' Government' is' well' aware' of' the' critical' importance' of' investment' guidance' and' the' preliminary' screening' of' investment' proposals.' Formally,' the' Government' published' a' number' of' longY' to' mediumYterm' planning' instruments' that' in' turn' are' used' to' guide' annual' budget' preparation'in'general'and'public'investment'in'particular.'Nevertheless,'the'inadequate'quality'of' such' planning' instruments,' the' lack' of' a' key' legal' framework' for' PIM,' the' bureaucratic' approach' and' lack' of' accountability' toward' screening' project' proposals—all' combined—effectively' dictate' the'de'facto'functioning'of'this'first'stage'of'the'project'evaluation'process.'' Previously' the' planning' function' was' undertaken' by' the' National' Commission' for' Development'Planning'(NCDP),'which'was'headed'by'a'senior'permanent'secretary.'The'NCDP'was' responsible' for' all' planning' and' for' the' preparation' of' the' National' Development' Plans.' The' commission' was' discontinued' in' the' early' 1990s,' as' the' planning' function' was' transferred' to' the' MOF.'However,'the'planning'function'was'not'deliberately'integrated'into'the'MOF'functions,'thus' this'function'has'not'been'implemented'properly,'especially'with'the'advent'of'the'cash'budgeting' T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 9 COUNTRY CASE STUDY: ZAMBIA 2014 ! Rebuilding a Broken Public Investment Management System process.' As' the' country’s' fiscal' performance' improved' and' the' need' for' planning' began' to' reemerge,' MOF' prepared' the' Poverty' Reduction' Strategy' Paper' (PRSP)' and' later' the' Transitional' National' Development' Plan' in' 2001.' By' the' time' the' Fifth' National' Development' Plan' (FNDP)' 2006–10' was' being' drafted,' the' new' Planning' Department' was' established' at' MOF.' The' new' institutional' developments' are' intended' to' enhance' coordination' and' guidance' on' public' investment' processes' at' the' macro' level' and' to' foster' resultsYbased' monitoring' of' the' FNDP' and' subsequent'development'plans.'At'a'later'stage,'the'Planning'Department'was'further'restructured' to' include' a' full' division' with' several' departments' and' was' renamed' the' Planning' and' Economic' Management'Division'(PEMD)'(see'annex'4).' The'MOF'has'not'been'able'to'effectively'exercise'its'mandates'due'both'to'the'serious'lack' of' capacity' in' managing' the' public' investment' function' and' to' the' absence' of' transparency' and' accountability'as'a'result'of'the'absence'of'a'uniform,'robust'legal'framework.'There'is'no'law'that' legislates' the' planning' or' budgeting' process;' instead,' call' circulars' are' issued' at' the' beginning' of' every'budget'cycle.'The'absence'of'such'key'legislation'has'led'to'ambiguity'in'the'entire'chain'of' the' project' proposal' process—from' preparation,' initial' screening,' appraisal,' budgeting,' to' implementation'and'monitoring.'The'critical'stages'of'the'public'investment'process'are'managed' mainly'by'the'implementing'line'ministries.'In'recent'years,'the'Government'has'introduced'various' planning' instruments,' including' (1)' National' Long' Term' Vision' 2030;' (2)' Transitional' National' Development' Plan;' (3)' Fifth' National' Development' Plan' (FNDP)' 2006–2010,' a' successor' to' the' Poverty'Reduction'Strategy'Paper'(PRSP);'(4)'sector'and'regional'strategies;'and'(5)'the'MTEF.'The' FNDP'specifies'the'strategy'and'vision'for'the'country’s'development'for'a'fiveYyear'period'and'is' supposed' to' anchor' the' design' and' preparation' of' sectors' and' regional' strategies' as' well' as' the' MTEF.'Within'this'framework'the'process'of'project'identification'relies'on'a'topYdown,'bottomYup' approach,' in' which' the' FNDP,' sector,' and' regional' strategies' are' supposed' to' provide' a' strategic' framework' and' guidelines' for' prioritizing' public' investments,' given' the' resource' envelopes' estimated'in'MTEF.'While'there'is'an'established'process'for'screening'project'proposals'for'basic' consistency' with' government' policy' and' strategic' guidance,' this' process' has' become' merely' a' formal' exercise' for' a' number' of' reasons,' including' the' low' quality' of' the' planning' and' sector' strategies.' Although'overarching,'the'FNDP'has'numerous'internal'limitations,'including'the'lack'of'a' robust' macroYfiscal' framework' or' guidance' for' sector' and' regional' development' policies' and' strategies.' As' a' result,' the' strength' of' the' linkage' between' the' FNDP' and' MTEF' on' budget' widely' varies' across' MPSAs.' The' sector' strategies' in' general' reflect' an' “optimism' bias”' and' are' typically' prepared' without' a' coherent' link' to' credible' resource' estimation.' These' strategies' are' broadly' defined'and'overly'ambitious,'and'as'such'they'can'easily'accommodate'any'investment'proposals' and' make' the' prescreening' process' a' simple' formal' exercise,' while' the' MOF' has' not' been' able' to' develop'clear'uniform'guidance'on'project'identification'and'appraisal.6''' T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 10 COUNTRY CASE STUDY: ZAMBIA 2014 ! Rebuilding a Broken Public Investment Management System Formal+Project+Appraisal+++ Two' different' modalities' apply' to' appraisal' of' donorYfinanced' and' governmentYfinanced' project' proposals.' While' donorYfinanced' investment' proposals' follow' the' donorYspecific' procedures' for' project' initiation,' appraisal,' supervision,' and' monitoring,' governmentYfinanced' projects'follow'completely'different'internal'procedures.'DonorYfinanced'projects'are'not'normally' reYappraised'by'Government,'whereas'governmentYfinanced'projects'are'not'subject'to'a'rigorous' appraisal'process.''' The'key'challenges'regarding'governmentYfinanced'projects'are'as'follows:'(1)'inadequate' legal' framework' and' lack' of' publicized' and' transparent' guidance' for' project' appraisal,' and' (2)' weak' institutional' capacity' and' lack' of' incentives' for' effective' training' and' deployment' of' staff' to' appraisal'function.''' The' whole' process' of' screening' and' appraisal' of' project' proposals' is' the' exclusive' responsibility'of'Ministries'Provinces'and'Spending'Agencies'(MPSA).'The'MPSAs,'in'turn,'generally' do'not'consult'with'MOF,'and'are'not'obliged'to'obtain'the'views'of'MOF'on'the'appraisal'process' (which'is'not'sufficiently'equipped'anyhow).'Neither'the'M&E'Department'nor'other'departments' of' the' newly' established' Planning' and' Economic' Management' Division' have' any' formal' role' in' providing'guidance'for'MPSAs'to'carry'out'systematic'ex'ante'or'ex'post'evaluation'of'economic'and' social'costs'and'benefits'of'proposed'projects.'' 'In' effect,' there' is' an' institutional' separation' between' planning' and' budgeting' on' the' one' hand,' and' appraisal,' implementation,' and' M&E' on' the' other—such' deficiency' remains' intact' despite' recent' effort' to' restore' the' national' planning' function' and' to' restructure' the' MOF.' Institutional' fragmentation' of' reforms—without' support' of' a' new' solid' legal' foundation' and' commensurate'human'resource'development,'including'measures'aimed'at'enhancing'institutional' capacity—seems'not'to'work.'' Good'practice'requires'that'the'Government'issues'formal'and'wellYpublicized'guidance'on' (1)'general'procedures'for'formal'appraisals'that'specify'the'types'of'proposals'subject'to'rigorous' mandatory' costYbenefit' or' costYeffectiveness' analyses,' and' identify' appropriate' institutional' arrangements' for' the' process,' and' (2)' whether' the' technical' aspects' of' project' appraisal' are' commensurate'with'the'state'of'technical'capacity'at'MPSAs.'In'Zambia,'there'is'no'such'document.' Without' integrated' guidance' on' PIM' and' a' new' law' on' planning' and' budgeting,' the' MPSAs' have' discretionary'latitude'to'conduct'costYbenefit'analysis'(CBA)'or'any'other'types'of'formal'appraisal' of'project'proposals.'' Some' line' ministries' formally' conduct' CBAs' for' proposed' projects' that' they' deem' to' be' significant,'producing'measurable'economic'benefits.'(For'cases'where'economic'benefits'cannot'be' readily'measured—typically'projects'in'social'sectors'like'health'and'education—costYeffectiveness' analysis'(CEA)'is'conducted'in'lieu'of'CBA.)'However,'there'is'neither'formal'guidance'nor'a'set'of' thresholds'that'could'transparently'and'uniformly'determine'the'proposals'to'be'subject'to'CBA'or' CEA.' The' Road' Development' Agency' (RDA)' follows' the' appraisal' guidelines' of' donors' engaged' in' T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 11 COUNTRY CASE STUDY: ZAMBIA 2014 ! Rebuilding a Broken Public Investment Management System implementing' road' projects' with' substantial' investment' costs' and' with' almost' half' of' the' total' financing'being'sourced'from'donors.'RDA'staff'conduct'CBA'for'major'trunk'and'main'roads'where' expected'traffic'is'high'and'it'is'feasible'to'estimate'their'economic'benefits.'' However,' it' is' still' an' open' question' as' to' both' the' quality' and' reliability' of' such' CBA' estimates' and' whether' they' exert' any' discernible' impact' on' the' final' project' selection' decision.' Without'central'guidance,'this'process'becomes'ad'hoc,'lacking' in'technical'rigor'and'open'to'the' abuse' of' rendering' an' optimismYbiased' justification' to' accept' economically' inefficient,' but' politically' motivated' proposals.' In' CBA,' for' example,' the' final' appraisal' outcomes' can' be' manipulated' to' go' either' way,' depending' on' numerous' macro' and' micro' projectYrelated' assumptions'and'on'the'way'the'shadow'price'of'costs'and'benefits'are'estimated.7'In'interviews' conducted'for'this'study,'a'number'of'government'officials'acknowledged'that'the'results'of'CBAs,' regardless'of'their'quality,'are'more'often'than'not'overlooked'and'trumped'by'political'decisions.' In' addition,' there' is' no' mandatory' requirement' for' line' ministries' to' maintain' a' systematic' inventory' of' their' appraised' projects.' Some' sectors' have' registers' of' their' projects' and' assets;' however,'MOF'does'not'have'a'complete'database'of'this'information.''' Independent+Review+of+Appraisal+ To' avert' the' common' tendency' for' optimism' bias' in' project' appraisal' and' to' protect' the' integrity' of' the' process' requires' a' functional' mechanism' for' independent' review.' This' process' would'be'a'thorough'and'objective'review'of'appraisals'that'would'provide'recommendations'with' regard'to'the'following'core'areas:'' • Objectivity'and'quality'of'appraisals,' • Disciplined'completion'of'project'appraisals'prior'to'budget,' • Systematic' maintenance' of' an' inventory' of' appraised' projects' ranked' by' priority' for' budgetary'consideration,'and' • Clarity'of'responsibilities'distinguishing'between'minor'projects'that'may'be'dealt'with' at' the' departmental' level,' and' those' requiring' substantive' justification' of' an' approval' decision.' ' However'this'independent'review'function'is'largely'missing'from'the'current'appraisal'process.'A' Sector'Advisory'Group'(SAG)'has'been'established,'but'its'responsibility'is'confined'to'engagement' in'group'does'not'deal'with'the'significant'independent'review'tasks'listed'above.' T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 12 COUNTRY CASE STUDY: ZAMBIA 2014 ! Rebuilding a Broken Public Investment Management System ' + Box+2:+Sector+Advisory+Groups+++ The'Sector'Advisory'Group'(SAG)'is'a'consultative'forum,'comprising'representatives'from' key' stakeholders' active' in' a' particular' sector.' Stakeholders' in' SAG' include' Government,' cooperating' partners,' CSOs' and' representatives' of' the' private' sector.' The' SAG’s' main' responsibilities'are'as'follows:' • Review' sector' performance' in' relation' to' the' implementation' of' sector' policies' and' strategies'as'identified'in'the'FNDP.' • Discuss'intrasectoral'allocation'of'resources'and'related'expenditures.' • Make' recommendations' for' the' future' focus' of' activities' in' the' sector' and' on' policy' reforms'necessary'during'the'implementation'of'the'FNDP.' • Ensure' that' crossYcutting' issues' are' mainstreamed' into' the' sector' programs' and' activities.' • Identify' institutional,' legal,' and' administrative' frameworks' for' effective' and' efficient' implementation'of'sector'programs.' ' Source:'MOF'2009c.' + ' Budgeting+and+Project+Selection+ The'isolation'between'budgeting'and'project'selection'is'the'Achilles’'Heel'in'the'Zambian' PIM' system.' Though' the' introduction' of' the' mediumYterm' expenditure' framework' (MTEF)' represents'one'of'the'biggest'strides'in'public'financial'management—contributing'to'progress'in' matching' resource' potential' and' capital' spending' planning—a' number' of' critical' issues' remain.' These'issues'are'as'follows:'' 1. The' quality' of' MTEF' still' needs' to' be' improved;' the' MTEF' and' other' capital' planning' instruments'(such'as'the'NDP)'require'a'stronger'macroYfiscal'framework'and'realistic' fiscal'forecasts.8'' 2. The' disconnection' of' the' MOF' from' project' planning' and' evaluation' conducted' at' MPSA’s'level'tends'to'break'the'link'between'the'budget'cycle'and'the'specific'project' appraisal'and'selection'process;'the'MOF’s'active'role'remains'confined'to'establishing' sector'envelopes'with'no'downstream'followYup.'' 3. The' role' of' MTEF' in' capital' spending' becomes' compromised' as' it' has' not' been' underpinned' by' a' comprehensive' legal' framework' governing' the' budgeting' and' investment'planning'processes.'' T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 13 COUNTRY CASE STUDY: ZAMBIA 2014 ! Rebuilding a Broken Public Investment Management System 4. The' disconnection' between' strategic' capital' planning,' budgeting,' and' project' selection—in' combination' with' the' missing' independent' review' function' in' PIM—in' effect,' heavily' discounts' the' gatekeeper' function' to' ensure' that' only' socially' and' economically' viable' projects' are' selected' to' enter' the' budget' negotiation' and' appropriation'processes.'' Interviews'with'senior'officials'at'MOF,'as'part'of'the'study'for'this'chapter,'indicated'that' consistency'in'prioritizing'resource'allocation'has'been'less'than'optimal.'In'setting'MPSA'resource' ceilings,' the' MTEF' and' budgeting' process' reflect' the' multiYyear' needs' for' capital' budgeting.' Particularly,'higher'priority'for'allocation'of'funds'is'supposed'to'be'given'to'completion'of'ongoing' project' construction,' rather' than' to' new' capital' spending' commitments.' Such' procedures' follow' international' best' practice.' However,' priorities' undergo' frequent' ad' hoc' shifts,' in' which' new,' politically' charged' projects' trump' efficiency' requirements,' rerouting' financing' from' ongoing' projects' to' these' newly' prioritized' ones.' Uncertainty' and' chronic' insufficiency' of' budgeting' for' completing'ongoing'projects'contributes'to'cost'overruns'as'implementing'agencies'are'unable'to' purchase' in' bulk' the' materials' for' construction' and' maintenance.' The' Ministry' of' Works' and' Supply' (MSW' 2008a)' highlights' that' much' needed' materials' are' actually' bought' from' local' suppliers' at' the' highest,' retail' price.' The' separation' between' budgeting' and' project' evaluation' provides' disincentives' for' MOF' to' cooperate' in' project' implementation;' in' addition,' it' drives' the' Ministry' out' of' a' position' from' which' it' is' able' to' ascertain' if' forward' costs' and' recurrent' expenditures'are'appropriately'managed'by'MPSAs.'' Even' though' Zambia' applies' performance' budgeting,' known' as' ActivityYbased' Budgeting' (ABB),' the' absence' of' uniform' guidelines' for' project' identification' and' appraisal' leads' to' the' unintended' consequence' of' poor' budgeting' at' the' MPSAs.' The' MPSAs' define' and' propose' public' spending' programs' for' ABB' in' a' wide' range' of' ways.' Typically,' overcommitted' investment' programs—that' can' easily' get' passed' through' initial' prescreening' under' the' cover' of' typically' ambitious' sector' strategic' plans—run' the' risk' of' inefficient' technical' resource' allocation' across' projects' within' the' same' MPSA' and' the' resultant' project' delays' and' incompleteness.' Allowing' an' excessive'number'of'project'proposals'to'jump'over'any'formal'gatekeeping'barrier'results'in'two' problems—the' burden' on' budgeting' and' resource' allocation' and' the' inefficiency' of' resource' utilization'due'to'low'absorption'capacity.' Another' problem' is' the' longstanding' interagency' coordination' issue' throughout' the' budgeting'and'project'selection'processes.'Institutionalized'procedures'for'assembling'a'database' of'project'proposals'and'providing'a'formal'system'of'project'ranking'for'financing'has'been'lacking' despite' the' recent' fundamental' reforms' in' strategic' planning' at' MOF.' The' basic' issue' is' that' the' Planning'and'Economic'Development'Division'of'the'MOF'does'not'get'access'to'timely,'periodically' updated' information' on' capital' planning' at' the' sector' and' regional' levels.' Without' the' basic' financial' information' about' project' design—including' construction' period,' estimated' project' life,' total'project'costs,'and'annual'investment'and'recurrent'outflows—the'MOF'is'not'able'to'exercise' its' supervisory' and' gatekeeping' function.' The' absence' of' a' comprehensive' project' database' prevents' MOF' from' efficiently' tracking' and' monitoring' expenditures' during' the' construction' T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 14 COUNTRY CASE STUDY: ZAMBIA 2014 ! Rebuilding a Broken Public Investment Management System period,' as' well' as' in' the' ex' post' evaluation.' The' role' of' MOF' becomes' further' diminished' in' managing' project' aid.' Project' aid' is' not' recorded' in' the' government' account,' but' rather,' it' is' lumped' under' department' level' in' the' budget.' The' MOF' thus' cannot' track' the' commitment' and' performance'of'individual'aid'financed'projects.'Reform'is'under'way'to'ensure'all'project'financing' is'channeled'through'the'Treasury'Single'Account.'' Poor' project' design,' budgeting,' and' selection—and' the' disconnection' between' these' processes—have' led' to' fundamental' inefficiencies.' As' a' case' in' point:' in' the' 2008' budget,' the' inadequate' budget' ceiling' meant' that' only' 30' percent' of' government' houses' were' rehabilitated' (MWS' 2008).' Inadequate' budgeting' for' maintenance' may' reflect' the' vested' interest' in' financing' new'projects.'' Project+Implementation+ The' nonexistent' procedures' for' management' of' all' foreseeable' costs' (total' and' annual' investment' costs)' and' the' lack' of' central,' uniform' guidelines' hamper' efficiency' in' project' implementation.'Budgeting'focuses'more'on'annual'cost'control'rather'than'total'cost'control.'The' lack'of'central'guidelines'for'project'implementation'and'the'absence'of'effective'mechanisms'for' institutional' coordination' contribute' to' the' diminishment' of' the' roles' of' the' two' key' central' agencies,'the'MOF'and'the'Ministry'of'Works'and'Supply'(MWS).'MOF'in'practice'does'not'have'a' substantial' role' in' the' project' cycle' after' the' annual' budget' ceilings' are' allocated.' The' MPSAs' effectively'receive'their'own'resource'envelops,'prepare'project'proposals,'and'conduct'their'own' procurements'and'implementation.'The'MWS'is'mandated'to'facilitate'infrastructure'development' (roads' and' construction)' in' addition' to' numerous' responsibilities' such' as' housing,' government' printing' and' gazetting,' office' accommodation' and' maintenance,' and' management' of' government' properties.' Despite' such' wide' ranging' activities,' the' MWS' faces' seemingly' insurmountable' difficulties:'inadequate'human'(both'staffing'level'and'skills)'and'financial'resources'(MWS'2008).' Its'role'is'confined'to'reviewing'technical'specifications'of'construction'at'the'design'stage,'auditing' completed' construction' projects,' and' issuing' certificates.' While' it' retains' a' certain' role' in' the' technical' aspect' of' projects,' it' is' excluded' from' direct' involvement' in' setting' capital' spending' priorities'and'from'the'entire'project'appraisal'process.'' While'the'MWS'is'formally'charged'with'a'supervising'role,'line'ministries'typically'bypass' it' for' its' technical' inputs' in' the' budgeting' for' rehabilitation' of' government' buildings,' commissioning' consultancies,' and' executing' civil' works,' or' signing' the' memorandum' of' understanding'(MOU)'documents'with'donors'for'civil'works.'Due'to'the'lack'of'cooperation'from' line'ministries,'the'MWS'plays'a'marginal'role'in'providing'technical'information'and'specifications' to'contractors'and'consultants'in'civil'works—information'that'should'have'become'a'vital'part'of' the'documents'or'contract'documents.'' Reforms' in' procurement' have' long' been' under' way' and' still' continue,' but' current' procurement' and' contracting' practices' do' not' guarantee' value' for' money' in' project' implementation.' The' Public' Procurement' Act' was' approved' in' October' 2008;' however,' procurement' practices' have' not' changed' because' of' the' delay' in' preparation' of' procurement' T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 15 COUNTRY CASE STUDY: ZAMBIA 2014 ! Rebuilding a Broken Public Investment Management System regulations.'And'because'the'Zambia'Public'Procurement'Authority'has'not'fully'taken'up'its'role'as' a' regulatory' authority' and' continues' to' play' a' procurement' role,' the' capacity' development' of' procuring'entities'is'slow'and'uncoordinated.'Competitive'bidding'is'either'not'strictly'feasible'or' enforceable'due'to'a'number'of'challenges,'including'(1)'the'lack'of'effective'checks'and'balances' for' implementing' agencies' that' are' directly' responsible' for' procurement' and' (2)' the' limited' market/supply'of'qualified'contractors'available.''' The'MWS'(2008a)'in'its'Strategic'Plan'MidYTerm'Review'alludes'to'perceived'corruption'in' the'construction'sector,'particularly'at'tendering'stage.'Box'X.3'summarizes'the'weaknesses'in'the' procurement' system' that' affects' both' the' timeliness' and' quality' of' project' implementation.' The' MWS' document' further' highlights' common' issues' in' construction:' delayed' commencement' and' completion' of' projects' are' extensive' due' to' poor' budgeting,' erratic' funding' and' consequential' delayed'payment'to'contractors'and'consultants.'While'no'official'statistics'on'project'delays'have' been' systematically' collected,' the' MWS' revealed' to' this' project’s' interviewer' that,' generally,' construction' is' completed' within' two' to' three' years' after' commencement,' but' it' is' currently' common'for'governmentYfunded'projects'to'observe'substantial'delays'as'long'as'five'years.'' Due' to' the' absence' of' uniform' guidelines' for' project' preparation' and' implementation,' implementing' agencies' are' not' under' pressure—nor' do' they' have' any' vested' incentives—to' prepare' periodic' progress' reports' and' to' establish' a' comprehensive' database' that' could' have' helped' trace' progress' and' detect' early' symptoms' of' project' delays' and' incompleteness.' Without' quality' progress' reports' and' a' database,' the' MPSAs' and' central' agencies' (in' particular,' the' MOF' and' MWS)' have' no' capacity' to' identify' and' analyze' the' root' causes' of' incompleteness' or' cost' overrun.'Such'implementation'problems'can'be'attributed'to'multiple'factors:'unrealistic'or'overY optimistic' design,' poor' project' appraisal' and' selection,' underfunding' during' the' construction' period,' outright' corruption,' or' even' lack' of' technical' capacity' to' control' cost' and' quality' of' construction.'Thereby'the'lines'of'institutional'accountability'become'blurred.'The'problems'tend' to' perpetuate;' responsible' agencies' fail' to' prepare' feedback' action' for' the' next' cycle' of' project' design,'appraisal,'implementation,'and'evaluation.'' + Box+3:+The+Procurement+System+in+Zambia+ The' most' recent' OECDYDAC' (2007)' assessment' of' the' public' procurement' system' in' Zambia' identifies'the'following'major'deficiencies:' • Excessive' use' of' selective' tendering' in' place' of' open' competitive' tendering' due' to' time' constraints'is'the'norm.' • While' procurement' is' part' of' the' country’s' financial' management' system,' procurement' planning' has' not' been' integrated' into' the' budgeting' process;' the' Zambia' National' Tender' Board'(ZNTB)'(now'Zambia'Public'Procurement'Authority,'ZPPA)'is'completely'dependent'' ' T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 16 COUNTRY CASE STUDY: ZAMBIA 2014 ! Rebuilding a Broken Public Investment Management System ' on' the' MOF' for' its' funding,' and' therefore' its' independence' as' a' regulatory' body' is' questionable.!' • There' is' no' system' and' procedure' for' collecting' and' monitoring' national' procurement' statistics.' • The' appeals' mechanism' in' the' current' procurement' system' is' inadequate' and' does' not' contain'the'basic'tenets'of'an'acceptable'appeals'mechanism.' These'weaknesses'are'being'addressed'through'recent'public'procurement'reforms.'The'2008' Public'Procurement'Act'was'adopted'to'replace'the'Zambia'National'Tender'Board'Act'(2002)' and' established' a' new' legal' framework' for' public' procurement.' The' Zambia' National' Tender' Board' has' been' renamed' the' Zambia' Public' Procurement' Authority' (ZPPA).' It' clearly' defines' the' regulatory' functions' of' the' ZPPA' as' separate' from' the' procuring' functions' of' the' various' MPSAs.' The' Act' also' stipulates' that' open' bidding' must' be' the' norm' for' competitive' procurements.'The'new'law'allows'for'arbitration'as'a'means'for'redressing'any'complaints.' ((((Source:'OECD–DAC'2007;'Zambia'Public'Procurement'Act'2008.' ' Project+Adjustment+ Updating' project' financial' or' economic' analysis' is' not' mandatory' for' MPSAs' to' receive' the' next' tranche' of' project' financing.' Change' in' completion' plans' or' investment' costs' is' usually' done' or' presented'on'an'ad'hoc'basis,'only'when'the'implementing'agencies'need'to'request'for'additional' funds'to'cover'cost'overrun'or'for'funds'already'budgeted'but'not'allocated'in'a'timely'manner.' The' Monitoring' and' Evaluation' Department' is' responsible' for' supervising' the' process' of' monitoring'project'implementation'at'the'MPSAs'and'facilitating'the'development'of'M&E'systems.' Of' these' functions,' the' M&E' implements' budget' monitoring' and' tracking' the' use' of' resources' for' ultimate' service' delivery.' The' department' is' currently' launching' an' R&D' program' aimed' at' improving' the' use' of' evidenceYbased' planning' and' decision' making.' Hence' it' should' be' actively' involved' in' the' project' adjustment' process.' However,' M&E' faces' an' uphill' battle' due' to' the' following'challenges:' • Currently'the'M&E'Department'is'seriously'understaffed,'with'only'six'officials'to'carry' out'its'ambitious'mandates.'' • Coordination—internally'in'MOF'or'externally'with'the'MPSAs—is'particularly'difficult.' The' department' cannot' collect' the' required' data' and' information' in' a' complete' and' timely' manner.' A' strong' legal' framework' that' requires' other' agencies' to' cooperate' remains'lacking.'' • Active'monitoring'of'project'implementation'does'not'exist.'Implementing'agencies'are' not' required' to' prepare' and' submit' periodic' project' progress' reports' to' M&E' Department.' The' Department' in' turn' has' to' passively' chase' after' them' to' track' their' T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 17 COUNTRY CASE STUDY: ZAMBIA 2014 ! Rebuilding a Broken Public Investment Management System budget'spending'while'it'has'no'direct'role'to'condition'onward'financing'decisions'on' implementation'adjustments'if'proved'necessary.'' • No' effective' mechanism' is' in' place' to' systematically' track' performance,' or' even' to' prevent' the' continued' financing' of' ongoing' projects' whose' benefits' do' not' justify' the' costs'of'public'spending.'In'this'regard,'the'systematic'use'of'supplementary'budgets'in' some' sectors' can' even' be' an' incentive' not' to' carefully' prepare' the' ex' ante' economic' analysis' and' instead' to' mislead' policy' makers' and' the' public' on' projects' costs' (and' possibly'lead'to'pervasive'corruption).' + Facility+Operation+ Another'issue'is'that'there'has'been'a'lack'of'a'mandatory'comprehensive'asset'registry'of'public' assets.'MPSAs'record'new'assets'in'their'books,'but'they'are'not'required'to'compile'an'integrated' database' and' submit' it' to' central' agencies' (particularly' the' MOF).' Asset' registry' becomes' even' more' ad' hoc' for' those' public' assets' acquired' with' donors’' additional' budget' funds.' While' line' ministries' are' supposed' to' register' new' facilities' and' vehicles' with' MWS,' this' project’s' interview' with'the'ministry'pointed'out'the'common'problem'of'nonYregistration'of'donorYfinanced'vehicles.' The' Government' is' developing' a' mechanism' to' undertake' the' inventorying' and' registration' of' public' property.' However,' the' process' has' been' significantly' delayed.' The' establishment' of' a' database' of' government' property—originally' scheduled' to' be' operational' by' 2007—was' also' postponed' at' the' end' of' 2008,' by' which' time' only' 10' percent' of' the' work' plan' was' completed.' Without'a'functional'asset'registry,'the'MWS'can'not'effectively'carry'out'its'mandate'to'facilitate' the' construction' and' maintenance' of' public' buildings' in' order' to' ensure' adherence' to' set' standards.9' The' MWS' undertook' an' ambitious' plan' to' develop' an' upYtoYdate' register' of' all' government'property'by'December'2010'(MWS'2008).'' The' MWS' is' mandated' to' manage' all' public' investments' in' terms' of' fixed' and' moving' assets.' However,'over'the'years'the'ministry'has'lost'control'over'the'management'of'public'investments' as' the' sectors' have' taken' an' active' role' in' planning,' implementing,' and' monitoring' their' own' investments.'The'MWS'still'has'some'control'over'two'areas'of'investment,'namely,'construction'of' public' buildings' and' control' of' public' service' motor' vehicles.' In' theory,' all' construction' in' the' public' service' is' supposed' to' be' monitored' and' approved' by' the' buildings' department' of' MWS.' MWS'is'supposed'to'have'a'full'register'of'all'construction'being'undertaken,'as'they'are'supposed' to' approve' the' plans' as' well' as' issue' the' certificates' of' complement' for' the' construction' work.' However,'the'MWS'buildings'department'is'not'adequately'staffed,'therefore'the'sectors'are'in'the' practice' of' engaging' consultants' and' supervisors' from' the' private' sector.' The' Controller' of' Government'Transport'is'in'charge'of'all'motor'vehicles'procured'by'the'Government.'He'maintains' the'register'and'issues'the'government'number'plates.'The'register'is'incomplete'because'a'large' number' of' vehicles' are' procured' by' development' partners' who' do' not' insist' on' government' registration' plates.' Thus' the' MWS' register' remains' substantially' incomplete,' given' the' extent' of' project'and'program'financing'by'development'partners'in'all'sectors'whose'staff'usually'purchases' motor'vehicles.' T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 18 COUNTRY CASE STUDY: ZAMBIA 2014 ! Rebuilding a Broken Public Investment Management System Project+Evaluation+ Ex' post' evaluation' exists' only' in' a' rudimentary' form' in' Zambia.' Currently' there' is' no' formal' institutional' arrangement' that' would' allow' for' effective' central' monitoring' and' capturing' the' evaluation'results'for'learning,'communicating,'and'drawing'lessons'for'new'project'cycles.'MPSAs' are'responsible'for'making'all'decisions'on'project'selection,'implementation,'and'tracking'service' deliveries,'whereas'the'newly'established'M&E'Department'in'the'MOF'does'not'play'a'direct'role' in'project'evaluation.'' Conclusions+and+Policy+Recommendations+ Although' the' Government' has' conducted' a' number' of' critical' reforms,' the' PIM' system' remains' largely' inefficient,' and' certain' key' functions' of' project' evaluation' are' missing' or' in' rudimentary' form.'This'study’s'diagnostic'assessment'indicates'that'in'the'current'institutional'and'governance' context' of' Zambia,' a' gradual' approach' would' be' more' realistic' to' increase' efficiency' of' the' PIM.' There'are'no'easy,'quick'fixes.'Following'is'a'set'of'broad'recommendations'for'reforms'in'the'order' these'interventions'should'be'performed,'from'the'short'to'the'long'term.' Project+review.'As'a'first'step,'the'M&E'department'of'the'MOF'should'undertake'a'review'of'the' completion'of'capital'spending'contracts'for'selected'ministries'(with'the'assistance'of'the'Office'of' the' Auditor' General).' Based' on' this' review,' data' should' be' disseminated' and' used' to' initiate' a' discussion'between'line'ministries'and'the'MOF'on'procedures'for'preparation'of'future'investment' proposals.' Monitor+progress.'As'part'of'the'budget'allocation'process,'in'order'to'receive'the'next'tranche'for' financing' ongoing' investments' under' construction,' MPSAs' are' required' to' submit' an' annual' progress' report' and' to' start' building' and' updating' their' database' of' their' project' portfolio.' The' MOF' should' be' mandated' to' review' and' consult' with' the' MPSAs' as' necessary' about' the' progress' report'to'ensure'the'quality'of'project'implementation'justifies'continued'financing.'' Build+legal+framework.'Enhancing'the'legal'framework'for'PIM'is'critically'needed.'While'the'risk' of' divergence' between' its' de' jure' legal' framework' and' its' de' facto' application' at' sector' level' is' critical,'building'a'solid'legal'framework'governing'PIM'helps'address'two'long'existing'problems:' (1)'ad'hoc,'uncommitted'cooperation'among'agencies'for'collecting'data'on'a'timely'basis'and'(2)' limited'use'of'monitoring'reports'and'analyses.'As'described,'the'Planning'and'Budgeting'Act'is'still' to'be'presented'to'Parliament.'There'is'clearer'understanding'in'the'Government'that'the'Act'would' be' essential' in' establishing' the' legal' basis' for' aligning' and' integrating' planning' and' budgeting' processes' and' for' enhancing' strategic' and' priority' investment' setting' and' transparency,' accountability'and'good'governance'in'project'appraisal,'selection,'implementation,'and'evaluation.' The' lack' of' this' critical' law' and' supporting' legislation' creates' ambiguity' in' the' institutional' mandates'and'accountability'of'central'and'line'ministries,'which'in'turn'masks'the'efficiency'and' accountability' problems' across' all' stages' of' PIM.' Without' a' legally' binding' requirement' for' coordination' in' PIM,' both' central' agencies' and' the' MPSAs' have' no' incentives' to' build' their' own' capacity' to' support' public' investment' evaluation' The' central' agencies—MOF' and' to' some' extent' T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 19 COUNTRY CASE STUDY: ZAMBIA 2014 ! Rebuilding a Broken Public Investment Management System the'Ministry'of'Works'and'Supply—either'are'bypassed'by'the'MPSAs'during'project'appraisal'and' selection'or'do'not'have'clear'authority'to'enforce'MPSAs'to'engage'in'the'evaluation'process.'The' missing' link' through' this' vertical' communication' channel' drives' a' wedge' between' the' project' evaluation' and' the' budgeting' process.' On' the' other' hand,' in' the' absence' of' both' vertical' and' horizontal'checks'and'balances,'MPSAs'may'exhibit'moral'hazard'in'giving'higher'priority'to'new' projects'versus'rehabilitation'of'existing'facilities,'and'to'larger'versus'smaller'scaled'projects.'All' projects' can' be' covered' by' loosely' defined' and' often' unrealistically' ambitious' sectoral' strategic' plans.' MPSAs' have' no' vested' interests' in' selfYmonitoring' implementation' progress,' updating' economic' and' financial' analysis' during' construction' (that' may' expose' them' to' the' risk' of' project' cancellation),'and'conducting'ex'post'evaluation.' Create+PIM+guidelines.'The'MOF'should'be'mandated'with'preparing'central,'uniform'guidelines' for'public'investment'evaluation.'The'establishment'of'the'new'PEMD'creates'opportunities'for'the' MOF' to' focus' their' limited' resources' on' providing' guidance' for' and' monitoring' of' project' prescreening'and'evaluation.'Central'guidance'and'monitoring'serves'as'a'check'and'balance'in'the' context' of' decentralized' project' identification' and' selection.' Giving' the' MOF' a' clear' mandate' to' exercise'its'central'role'in'preparing'guidance'for'and'monitoring'different'stages'of'appraisal,'and' establishing'a'transparent'legal'basis'for'institutional'coordination'between'MOF'and'MPSAs'would' alter' institutional' incentives' and' hold' MPSAs' accountable' for' building' capacity' and' integrating' project'appraisal'and'budgeting'in'order'to'ensure'overall'efficiency'of'PIM.'' The' MOF' will' need' to' establish' a' transparent,' uniform' guidance' manual' for' project' design,' appraisal,'and'selection.'The'manual'has'to'be'consistent,'transparent,'yet'sufficiently'detailed'for' standard' application' across' sectors.' It' should' provide' clear' stepYbyYstep' appraisal' and' spell' out' specific' sanctions' against' violations' of' the' guidelines' and' incentives' for' compliance.' The' manual' needs' to' be' supported' and' sustained' by' the' new' planning' and' budget' act' and' its' supporting' legislation.' A' pilot' approach' is' also' worth' consideration;' the' manual' can' be' applied' to' a' selected' sector' and' then' reviewed' and' revised' for' rollout' out' in' a' well' sequenced' manner.' In' any' case,' selection'criteria'for'project'appraisal'need'to'be'widely'disseminated'to'the'public'and'discussed' in'order'to'make'them'as'transparent'as'possible'in'order'to'limit'potential'political'interference'in' support'of'white'elephants.' Improve+project+appraisal.'In'the'medium'to'long'term,'improving'level'and'specialized'skills'in' project'appraisal'at'both'central'agencies'(MOF'and'Ministry'of'Works'and'Supply)'and'MPSAs'is' critically' important.' This' institutional' capacityYbuilding' must' be' integrated' into' an' overall' HR' reform' strategy.' The' existing' staff' scattered' in' different' departments' of' the' MOF' and' MDSAs' potentially' have' the' capacity' to' quickly' learn' and' adapt' to' new' skills.' Training' has' to' be' a' longY term,' consistent' process.' However,' training' staff' alone' is' not' a' sustainable' solution—it' must' be' combined' in' a' comprehensive' human' resources' reform' program' that' provides' incentives' and' motivation'to'attract'new'and'retain'existing'qualified'staff.'' Unify+ appraisal+ process.' In' the' long' term,' the' general' guidance' for' best' practice' is' to' unify' the' appraisal'process'for'both'donor'and'government'financed'projects.'But'it'is'worth'noting'that'this' T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 20 COUNTRY CASE STUDY: ZAMBIA 2014 ! Rebuilding a Broken Public Investment Management System is' only' feasible' when' basic' capacity' is' built' and' when' appropriate' government' procedures' and' institutional' arrangements' are' sufficiently' developed.' This' implies' the' value' of' further' technical' assistance' support' from' donors' in' this' critical' area.' The' developmentYpolicy' lending' for' Vietnam' Public'Investment'Reform'(World'Bank'2009;'2011)'represents'a'model'for'such'donor'support'in' this' important' but' often' neglected' area' of' PFM.' Currently' donors' in' Vietnam' partner' with' government' agencies' to' create' a' comprehensive' aid' project' database' (information' gateway)' as' a' first'step'toward'integrating'procedures'for'appraisal'of'donorY'and'governmentYfinanced'projects.' Within'the'context'of'donor'coordination,'the'Government'of'Zambia'should'probably'require'from' donors' gradual' and' regular' information' on' donorYfinanced' project' and' start' to' update' this' database'in'responsible'line'ministries.' T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 21 COUNTRY CASE STUDY: ZAMBIA 2014 ! Rebuilding a Broken Public Investment Management System Notes+ ' 1. 'It'is'also'worth'noting'that'when'capital'expenditures'recorded'a'decreasing'trend,'FDI'flows' jumped'in'the'last'years.'However,'they'seem'to'be'related'to'major'investments'in'the'mining' sector'and'may'not'necessarily'have'a'major'spillover'effect'in'terms'of'poverty'reduction.' 2. In' terms' of' investment' by' sector,' education' is' by' far' the' largest' spender,' followed' by' health' (annex'3).'Investment'in'agriculture'has'been'rising'steadily'albeit'at'relatively'lower'rate'since' 2005.' It' is' also' worth' noting' that' since' 2007,' the' budget' to' the' roads' sector' has' increased' dramatically.' The' evolving' structural' pattern' of' public' spending' in' these' four' key' sectors' indicates' that' effectiveness' in' their' sectoral' investment' would' largely' determine' the' overall' investment'effectiveness'and'poverty'reduction.' 3. The'change'of'the'budget'cycle'in'2009'is'supposed'to'remedy'part'of'this'problem.' 4. In' many' countries,' public' investment' in' physical' assets—such' as' economic' infrastructure' or' health' or' education' facilities—that' contribute' to' improvements' in' human' capital' is' often' weakened'by'low'efficiency'stemming'from'poor'project'selection'and'implementation.'This'is' manifested' in' problems' such' as' wasteful' “white' elephant”' projects,' delays' in' design' and' completion'of'projects,'corrupt'procurement'practices,'cost'overYruns,'incomplete'projects,'and' failure'to'operate'and'maintain'assets'effectively.' 5. This' can' also' be' explained' by' the' fact' that' most' projects' are' not' well' prepared' and' the' M&E' framework'most'of'time'is'underdeveloped.' 6. It' is' also' worth' noting' that' to' date' the' Government' has' not' exerted' any' collective' effort' to' incorporate'environmental'concerns'at'the'strategic'level'in'project'planning'and'prescreening.' The' Environmental' Council' of' Zambia' was' established' through' the' Environmental' Protection' and' Pollution' Control' Act,' Cap' 204' of' the' Laws' of' Zambia.' It' assumes' a' wide' range' of' responsibilities,' including' monitoring' and' enforcement' of' regulations' and' standards' of' all' aspects' of' the' environment,' advisory,' licensing,' inspections,' and' environmental' education.' In' 2008' alone,' it' reviewed' a' total' of' 208' Environmental' Impact' Assessment' (EIA)' reports' (ECZ' 2008).'One'key'problem'related'to'the'efficiency'of'PIM'is'the'failure'to'conduct'environmental' impact' assessments' prior' to' project' design' and' implementation.' While' the' ECZ' is' mandated' with' various' responsibilities,' it' faces' multiple' challenges,' including' the' insufficient' number' of' staff,'high'staff'turnover,'and'the'general'poor'attitude'toward'environmental'management'and' fiscal'sustainability.'' 7. This'is'why'many'economists'and'practitioners'express'doubt'about'the'usefulness'of'applying' costYbenefit' analysis' or' costYeffectiveness' analysis' in' countries' where' rigorous' appraisal' processes,' appropriate' institutional' arrangements,' and' capacity' do' not' exist,' or,' basically,' the' political'elites'have'no'incentives'to'invest'in'capacity'for'appraising'capital'spending'proposals.' 8. This' is' somehow' relative' compared' to' the' weakness' of' other' links' of' public' investment' management.' T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 22 COUNTRY CASE STUDY: ZAMBIA 2014 ! Rebuilding a Broken Public Investment Management System 9. In'particular,'a'mechanism'for'maintenance'of'government'buildings'is'still'to'be'developed'and' the' rehabilitation' is' further' hampered' by' general' incentives' grossly' biased' for' new' construction'in'budgeting'process.' ' References++ CSO' (Central' Statistical' Office' of' Zambia).' 2010.' “Living' Conditions' Monitoring' Survey' Report' 2006.”'Government'of'Zambia,'Lusaka.' ECZ' (Environmental' Council' of' Zambia).' 2008.' Annual! Report! 2008.' ECZ,' Government' of' the' Republic'of'Zambia,'Lusaka.' MoE' (Zambia' Ministry' of' Education).' 1996.' “Educating' our' Future:+National' Policy' on' Education.”' Zambia'Ministry'of'Education,'Lusaka.+ MWS'(Ministry'of'Works'and'Supply).'2008.'“Strategic'Plan'Mid'Term'Review'(2006–2010).”'MWS,' Government'of'the'Republic'of'Zambia,'Lusaka.' MOF.' (Ministry' of' Finance).' 2009.' “2010–2012' Medium' Term' Expenditure' Framework' and' the' 2010'Budget'Green'Paper.”'MOF,'Government'of'the'Republic'of'Zambia,'Lusaka.' Mwangala,'Petronella.'2010.'“Review'of'Oversight'Institutions'in'Zambia.”'Unpublished'document,' World'Bank,'Washington,'DC.' OECD–DAC' (Organisation' for' Economic' CoYoperation' and' Development–Development' Assistance' Committee)+ 2007.' “OECDYDAC' Joint' Venture' For' Procurement:' Country' Pilot' Program' (Zambia):' Assessment'of'Public'Procurement'System.”'OECD,'Paris.' Natural' Resource' Charter' “Natural' Resource' Charter”' Oxcarre,' ' available' at' http://naturalresourcecharter.org/' Rajaram,' Anand,' Tuan' Minh' Le,' Nataliya' Biletska,' and' James' Brumby.' 2010.' “A' Diagnostic' Framework' for' Assessing' Public' Investment' Management.”' World' Bank' Working' Paper' 5397,' World'Bank,'Washington'DC.' World' Bank.' ' 2009.' The' First' Public' Investment' Reform' Development' Policy' Loan,' November' 19,' 2009.'Report'51146YVN.'World'Bank,'Washington,'DC.' World'Bank.'2011.'The'Second'Public'Investment'Reform'Development'Policy'Operation,'April'26,' 2011.'Report'58821YVN.'World'Bank,'Washington,'DC.' ' ' T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 23 COUNTRY CASE STUDY: ZAMBIA 2014 ! Rebuilding a Broken Public Investment Management System + Annex+1.++Trends+Comparison:+Ratios+of+Wages+and+Capital+to+Current+Expenditures+ of+the+Central+Government+(%)+ 50%! 45%! 40%! 35%! 30%! RaHo!wages/ Wages! 25%! current!exp.! ! 20%! ! RaHo!capital/ Capital! 15%! current!exp.! 10%! 5%! 0%! 2005! 2006! 2007! 2008! 2009! ' Source:'Zambian'authorities'and'IMF'staff.' + Annex+2.+Trends+Comparison:+Capital+Expenditures+vs.+Foreign+Direct+Investment+ (%'of'GDP)' 10! 9! 8! 7! 6! 5! Capital!exp! 4! FDI! 3! 2! 1! 0! 2005! 2006! 2007! ' Source:'Zambian'authorities'and'IMF'staff;'FDI'data'from'World'Development'Indicators.' T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 24 COUNTRY CASE STUDY: ZAMBIA 2014 ! Rebuilding a Broken Public Investment Management System + Annex+3.+Actual+Expenditures+Trend+by+Sector++ (billion'Zambian'Kwachas)' !2,500!! !2,000!! Agriculture! !1,500!! EducaHon! !1,000!! Health! !500!! Roads! !N!!!! 2004! 2005! 2006! 2007! 2008! + Source:'Zambian'financial'accounts.' Annex+4.+Ministry+of+Finance+ The' Ministry' of' Finance' (MOF)' has' three' divisions:' Financial' Management' and' Administration' (FMA),' Planning' and' Economic' Management,' and' Budget' and' Economic' Affairs' (BEA).'This'structure'is'the'outcome'of'a'recent'restructuring'process'which'included'the'creation' of' the' Planning' Division,' headed' by' a' Permanent' Secretary,' in' recognition' of' the' absence' of' the' planning'function'in'MOF.'No'formal'communication'has'been'issued'to'the'effect'that'this'decision' has' been' reversed,' and' on' the' ground' at' the' present' stage,' Economic' Management' is' being' managed'by'the'Permanent'Secretary'of'Finance'and'Economic'Management.'Further,'no'additional' officers'were'recruited'following'the'creation'of'the'planning'division.'Therefore,'the'few'officers'in' BEA'division'were'spread'across'the'departments'in'both'BEA'and'PEM'divisions.'Consequently'an' effort'to'recruit'planners'below'the'level'of'principal,'as'the'planning'presence'was'intended'to'be' in'all'provinces,'was'not'completed.'Systems'and'processes'for'the'new'departments'that'were'set' up' have' not' been' fully' developed.' Also' there' appears' to' be' overlapping' mandates' between' the' departments,'which'would'need'to'be'harmonized.' +The+ FMA+ and+ EM+ Division' is' managed' by' a' Permanent' Secretary' who' is' also' the' controlling' officer' for' the' ministry.' The' Permanent' Secretary' (BEA)' currently' manages' the' departments'falling'under'the'BEA.+' T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 25 COUNTRY CASE STUDY: ZAMBIA 2014 ! Rebuilding a Broken Public Investment Management System Composition+of+the+FMA+and+EM+Division+++ FMA(Department:( • Financial+ Management+ and+ Accounting+ Department—responsible' for' ensuring' that' funds' reach' the' points' of' service' and' reporting' of' revenues' and' expenditures' of' Government.' It' is' also' responsible' for' the' recruitment' and' supervision' of' all' the' accountants' in' government.' This' office' is' also' responsible' for' accounting' for' all' government' assets' and' investments;' however,' this' department' does' not' do' this' but' trusts'that'the'sectors'maintain'accurate'records.' • Centralized+ Computer+ Services+ Department—responsible' for' the' management' and' maintenance'of'government'information'technology'systems'and'applications.' • Internal+ Audit' Department–' responsible' for' the' internal' audit' function' of' Government.'All'internal'auditors'in'government'are'recruited'and'supervised'through' this'office.' • Human+ Resources+ and+ Administration' Department—responsible' for' employment,' staffing' levels,' training,' disciplinary' action,' and' other' aspects' of' HR' management' and' administration'in'MOF.'The'Zambia'Public'Procurement'Authority'also'falls'under'this' department.' • Government+ Stores—responsible' for' the' procurement' and' sale' of' government' stores' to'MPSAs.' EM(Department:( • Central+ Statistical+ Office—' responsible' for' the' compilation' and' reporting' of' all' national'statistics.+ • National+ Planning+ Department—responsible' for' the' coordination' of' the' national' planning'process'and'the'development'and'implementation'of'the' National'Vision'and' the' National' Development' Plans.' The' topYdown' and' bottomYup' approaches' are' currently'not'well'coordinated,'mainly'because'the'National'Development'Coordinating' Committee'has'never'been'functional.+ • Economic+ Management+ Department—responsible' for' the' coordination' of' the' management' of' the' economic' program.' Also' responsible' for' the' management' of' negotiations'and'signing'of'agreements'with'cooperating'partners.'It'is'also'responsible' for'developing'and'the'management'of'economic'models.'+ • M&E+ Department—responsible' for' the' monitoring' and' evaluation' of' the' implementation' of' the' National' Vision,' National' Plans,' and' the' National' Budgets' and' preparation'of'monitoring'reports.'Existing'monitoring'framework'has'been'found'to'be' inadequate.+ • National+ Policy+ and+ Program+ Implementation+ Department—responsible' for' the' coordination' of' the' formulation,' implementation,' and' analysis' of' economic' and' social' policies.' Also' responsible' for' the' development' of' the' Policy' Analysis' and' Programme' Implementation'Frameworks.'There'is'weak'coordination'among'sectors'due'to'lack'of' T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 26 COUNTRY CASE STUDY: ZAMBIA 2014 ! Rebuilding a Broken Public Investment Management System proper' policy' analysis' by' the' Policy' Analysis' and' Coordination' Division' at' Cabinet' Office.+ BEA(Division(has(the(following(departments:( • Budget+ Office—responsible' for' the' coordination' of' all' aspects' of' budget' preparation,' execution' and' is' the' custodian' of' the' government' budget.' It' is' also' responsible' for' development'of'treasury'management'systems.'No'processes'are'in'place'for'this'office' to'review'the'budget'presentations'that'are'made'by'sectors'especially'regarding'capital' investment.' There' are' no' laws' or' processes' that' are' used' when' reviewing' budget' submission' or' as' a' guide' to' the' sectors' when' they' are' preparing' their' budget' submissions.' • Investment+and+Debt+Management+Department—responsible'for'the'contraction'and' repayment' of' all' government' loans,' treasury' bills,' and' bonds.' This' office' is' also' responsible'for'the'management'of'the'government'debt'stock.'It'is'also'responsible'for' the' supervision' and' investments' in' parastatal' companies.' There' are' no' laws' or' procedures'on'approval'of'loans'and'their'application.'' MOF'is'also'responsible'for'the'supervision,'with'regard'to'policy,'of'the'National'Road'Fund' Agency,'the'institution'responsible'for'mobilizing'the'resources'under'and'management'of'the'Road' Fund.'+ Annex+5.++Investment+Process+Diagnostic+in+the+Roads+Sector+ Investments'in'the'roads'sector'are' expected'to'become'the'first'sector'in'terms'of'public' spending' in' the' upcoming' years.' The' Government' of' Zambia' and' donors' almost' equally' fund' this' sector.' In' recent' years,' Government' funding' has' increased' significantly.' Investments' are' made' within'the'framework'of'a'10Yyear'program'(2003–13),'currently'being'updated.'According'to'this' document,' priority' is' given' to' maintenance' of' the' existing' road' network.' However,' in' terms' of' spending,' rehabilitation' continues' to' prevail' over' maintenance' (approximately' 70' percent' of' the' total'funding'vs.'30'percent'for'maintenance).' The(Government(strategy(for(the(roads(sector(is(as(follows:( 1. Investment+Guidance+and+Preliminary+Screening.+ The'current'strategy'derives'from+ the'10Yyear'program.'Emphasis'is'given'to'maintaining'roads'in'good'condition'and'on' the' rural' network.' This' is' somehow' influenced' by' donors’' programs,' which' focus' at' least'in'theory'on'rural'roads.'No'independent'assessment'of'the+current'strategy'seems' to' have' been' carried' out.' Moreover,' no' impact' evaluation' seems' to' have' been' feeding' the'current'strategy'in'this'sector.' 2. Formal+Project+Appraisal.+This'is'currently'carried'out'by'the'RDA'(Road'Development' Agency)' using' the' HDMY4:' Highway' Development' Model' and' updated' parameters,' which' is' not' so' frequent' in' SSA.' For' rural' roads,' economic' assessment' is' in' theory' ensured' by' local' authorities,' with' guidance' from' RDA.' In' reality,' assessment' of' rural' roads'does'not'seem'to'be'properly'carried'out'in'most'instances.+ T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 27 COUNTRY CASE STUDY: ZAMBIA 2014 ! Rebuilding a Broken Public Investment Management System 3. Independent+ Review+ of+ Appraisal.+ There' is' no' independent' review' of' the' economic' appraisal'of'road'projects'and'no'challenge'from'the'Ministry'of'Finance.' 4. Project+ Selection+ and+ Budgeting.+ HDMY4' is' theoretically' used' for' project' prioritization.' However,' with' the' example' of' the' approval' of' major' projects' with' sole' sourcing'with'Chinese'companies,'such'as'the'MonguYKalabo'road'(with'limited'traffic),' some' projects' may' not' be' screened' as' rigorously' as' others.' The' Road' Fund' Agency' funds' most' of' the' projects' in' the' sector.' Funding' is' allocated' to' the' projects' based' on' proposals/priorities'set'by'RDA.' 5. Project+Implementation.+ There'is'no'systematic+ record'and'disclosure'of'the'number' and' amount' of' incomplete' contracts.' Audits' in' this' area' point' out' that' there' are' abnormal' delays' for' several' projects,' frequent' cost' overruns,' and' weak' engineering' supervision,'as'well'as'problematic'financial'management'of'some'contracts.' 6. Project+Adjustment/active+monitoring+of+project+implementation+and+adjustment.+ There'is'no'systematic'record'and'disclosure'of'the'number'and'amount'of'incomplete' contracts.' ZPPA' and' the' Road' Fund' Agency' have' to' approve' cost' overruns' over' 40' billion'ZMK,'which'limits'the'power,'on'paper,'of'RDA.' 7. Asset+ management.+ Roads' assets' are' classified' and' registered.' Roads' classification' is' under'review.' 8. Project+ Evaluation.' There' is' no' widespread' use' of' project' evaluation,' especially' for' rural'roads.'Moreover,'the'M&E'unit'of'the'Ministry'of'Finance'is'not'involved'at'all'in' the'scarce'attempts'done.'Without'impact'evaluation'of'past'projects,'a'possible'revision' of'the'strategy'seems'rather'difficult.' Annex+6.+++Investment+Process+Diagnostic+in+the+Education+Sector+ Education'is'the'leading'sector'in'terms'of'public'spending'in'Zambia.'The'Government'of' Zambia' funds' ' 60' percent' of' public' spending' and' 40' percent' comes' from' donors.' Government' funding' increased' significantly' since' 2004–05.' The' Government' recognized' in' the' Fifth' National' Development' Plan' (FNDP)' the' role' of' education' in' poverty' reduction' and' the' need' for' early' childhood' education.' The' National' Development' Plan' targets' 4' percent' of' the' GDP' for' education.' MoE' expenditure' for' 2005' was' budgeted' to' be' 2.8' percent' of' GDP.' The' Government' targeted' a' minimum'allocation'of'20.5'percent'of'the'total'annual'discretionary'budget'for'the'sector.'' Reforms(needed(for(the(education(sector(are(as(follows.( 1. Investment+Guidance+and+Preliminary+Screening—The'current'strategy'is'based'on' the' document,' “Educating' Our' Future”' (MoE' 1996).' Principles' and' policy' targets' are' involved' in' the' Fifth' National' Development' Plan.' In' terms' of' strategy,' the' Ministry' of' Education'strives'to'ensure'that'every'child'has'access'to'a'minimum'of'seven'years'of' good'quality'schooling'in'a'school'of'parental'choice.'The'MoE'has'given'priority'during' the' period' 2005–2015' to' upgrading' all' primary' schools' to' full' basic' school' status.' No' independent' assessment' of' the' current' strategy' seems' to' have' been' carried' out.' Projects' are' either' supplied' by' donors' or' developed' by' the' MoE.' Projects' developed' internally'in'the'MoE'are'subject'to'internal'discussions'to'be'selected.' T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 28 COUNTRY CASE STUDY: ZAMBIA 2014 ! Rebuilding a Broken Public Investment Management System 2. Formal+ Project+ Appraisal—Projects' for' less' than' 2' million' USD' are' not' subject' to' formal'project'appraisal'in'most'cases,'especially'if'funded'by'donors.' 3. Independent+Review+of+Appraisal—There'is'no'independent'review'of'the'economic' appraisal'of'education'projects'and'no'challenge'from'the'Ministry'of'Finance.' 4. Project+ Selection+ and+ Budgeting—Projects' developed' internally' in' the' MoE' are' subject'to'internal'discussions'with'a'strong'role'of'the'planning'department'and'of'the' monitoring'and'evaluation'technical'committee.' 5. Project+Implementation—There'is'no'systematic'record'and'disclosure'of'the'number' and'amount'of'incomplete'contracts.'' 6. Project+ Adjustment/active+ monitoring+ of+ project+ implementation+ and+ adjustment—There'is'no'systematic'record'and'disclosure'of'the'number'and'amount' of'incomplete'contracts.'CSOs'are'scarcely'involved'at'this'stage'(contrary'to'the'process' in'the'design'stage).' 7. Asset+management—Assets'are'classified'and'registered.'' 8. Project+ Evaluation—There' is' no' widespread' use' of' project' evaluation.' Moreover,' the' M&E' unit' of' the' Ministry' of' Finance' is' not' involved' in' the' scarce' attempts' done.' However,'some'pilots'seems'to'have'been'implemented,'such'as'the'school'health'and' nutrition'pilot'in'Eastern'Province,'which'proved'to'be'effective'and'is'now'being'scaled' out' to' other' provinces.' The' MoE' acknowledges' however' that' some' further' research' needs'to'be'undertaken'to'increase'impact'of'projects'on'topics,'such'as'enrollment'of' orphans'and'vulnerable'children,'early'childhood'development,'adult'literacy'provision,' girls’' education,' and' high' school' curriculum' revision' assessment' with' reference' to' life' skills.' In' addition,' research' is' being' initiated' into' costYefficiency' measures,' such' as' pupilYteacher' ratio' at' basic' and' high' school' level,' lowYcost' construction,' reduced' textbook' costs,' and' costYrecovery' mechanisms,' particularly' for' high' schools' and' universities.'' Annex+7.+++Investment+Process+Diagnostic+in+the+Health+Sector+ The'National'Development'Plan,'in'this'case'the'Fifth'National'Development,'is'supposed'to'include' details'of'Health'Sector'investments'over'the'period'of'the'plan.'The'National'Health'strategic'plan' is'intended'to'derive'any'investment'details'needed'from'the'National'Development'Plan.'However,' given'the'differences'in'timing'in'the'preparation'of'the'two'documents,'there'may'not'be'a'perfect' symmetry' of' the' investments' that' are' included' in' both' documents.' Funding' for' health' sector' investments'is'mainly'funded'by'donors,'with'very'little'provision'in'the'national'budget.' Government'strategy'for'the'health'sector'is'as'follows:' 1. Investment+Guidance+and+Preliminary+Screening—Investments'in'the'Health'Sector' are'derived'from'the'National'Health'Strategic'Plan'which'covers'a'period'of'five'years.' The' strategic' plan' is' further' disaggregated' into' action' plans,' annual' work' plans,' and' budgets.'The'ministry'has'a'list'of'investments'that'are'planned'over'a'period'of'time;' when'partners'wish'to'fund'particular'infrastructure'development,'they'are'encouraged' to'finance'those'that'have'already'been'identified.' T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 29 COUNTRY CASE STUDY: ZAMBIA 2014 ! Rebuilding a Broken Public Investment Management System ' 2. Formal+ Project+ Appraisal—For' investments' that' are' funded' by' the' Government,' project'appraisal'is'carried'out'within'the'planning'section'of'the'Ministry'of'Health.'It' was' not' clear' whether' any' form' of' costYbenefit,' economic' benefit,' or' other' analysis' is' actually'undertaken,'or'at'best,'if'it'is'undertaken'consistently'across'project'proposals.' There'are'no'formal'procedures'that'indicate'how'this'analysis'is'to'be'undertaken'for' particular' investments.' Partners' that' fund' particular' investments,' which' are' the' majority,' carry' out' their' own' project' appraisals,' which' normally' are' agreed' to' by' the' ministry.' + 3. Independent+Review+of+Appraisal—There'is'no'independent'review'of'the'economic' appraisal'of'health'projects'and'no'challenge'from'the'Ministry'of'Finance.' ' 4. Project+ Selection+ and+ Budgeting—Project' selection' is' normally' based' on' what' the' partners' are' interested' in' and' are' able' to' finance' at' a' particular' time,' as' public' resources'for'investments'are'minimal.'However,'where'there'is'a'great'public'demand' for' a' particular' investment,' the' ministry' will' prioritize' and' encourage' partners' to' finance'those'investments'(for'instance'the'completed'and'operational'Cancer'Hospital' and'the'Lusaka'General'Hospital'under'construction).' ' 5. Project+ Implementation—The' ministry' does' not' maintain' complete' records' of' the' implementation' status' of' all' investments' being' undertaken.' Through' the' annual' external' audits,' periodic' reviews' of' implementation' progress' are' undertaken.' The' partners'financing'various'investments'also'keep'details'of'progress'on'investments.' ' 6. Project+ Adjustment/active+ monitoring+ of+ project+ implementation+ and+ adjustment—There'is'no'complete'record'and'disclosure'of'the'number'and'amount'of' incomplete'investments.' + 7. Asset+management—The'Government'maintains'a'cash'budgeting'system'in'which'all' capital'expenditures'are'expensed'at'the'time'they'are'incurred'(no'accruals).'However' the'ministry'maintains'asset'registers'that'have'details'of'the'investments'being'made.' The' Buildings' Department' (Ministry' of' Works' and' Supply)' also' maintains' records' on' buildings'that'they'are'involved'in'supervising.'However'the'registers'are'not'complete' and'there'is'no'single'depository'for'the'information.' ' 8. Project+ Evaluation—There' is' no' single' methodology' for' project' evaluation.' Systems' for'involvement'of'relevant'sectors'and'support'institutions'are'not'fully'developed.' !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 1 It is also worth noting that when capital expenditures recorded a decreasing trend, FDI flows jumped in the last years. However, they seem to be related to major investments in the mining sector and may not necessarily have a major spillover effect in terms of poverty reduction. T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 30